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Tax evaders use trusts to escape authorities
January, 21st 2011

As time runs out for Swiss bank and other secret offshore accounts of resident Indians, some of them are hiding behind trust structures to escape tax authorities.

At least three individuals who were ordered to pay tax against money lying in Liechtensteins LGT Bank have told the tax department that their names figure as beneficiaries of a trust that has an account with the bank. The persons said they were neither aware how the trust was formed nor have they received any money from the trust.

Last week, all three appealed before tax tribunals to challenge the departments order, which had directed each of them to cough up Rs 16 crore as tax. These three are among the 40 in the list of LGT account holders that German authorities shared with the Indian government two years ago.

It could well be a clever ploy as such offshore discretionary trusts can serve as shelter for possible tax evaders... Also, many account holders are shifting money to Dubai, said a person who refused to disclose the names of the beneficiaries of the trust concerned. According to him, many residents who stashed money in big as well as boutique Swiss banks like Julius Baer may have parked the money in the names of discretionary trusts.
In discretionary trusts, the proportion of money to be shared with the beneficiaries is left to the discretion of the trustees and not spelt out in the trust deed.

NRIs who have formed such trusts can in no way be touched by Indian authorities. But as far as residents are concerned, it will be interesting to find out how tax tribunals and courts view such an argument about a trust. Its a hurdle that tax authorities may run into, said a Mumbai-based senior chartered accountant. But in cases where individuals have opened accounts directly, the government will come under pressure to reveal the names behind the numbered codes once the Indo-Swiss treaty comes into effect in April.

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